Buying and selling off-the-plan generally involves the developer and the buyer entering into a contract for the sale of a property, often a unit that is part of a larger development complex that is yet to be constructed. These contracts usually involve the buyer paying a deposit (usually 10% of the purchase price) on signing the contract with the balance of the purchase price being payable on completion after the unit complex has been constructed.
Because the buyer is agreeing to buy something in the future, which at the time of signing the contract does not yet exist, very specific rules and laws have been developed which must be complied with by the developer. The developer must provide the buyer with comprehensive disclosure documentation containing prescribed information, signed by or behalf of the developer, before the buyer signs the contract. If the disclosure documentation is not provided to the buyer, the buyer may terminate the contract at any time before the contract settles.
There is no standard off-the-plan contract that has been approved by the Queensland Law Society or REIQ. An off-the-plan contract and the disclosure documentation will normally be prepared on a bespoke basis by the developer’s solicitor.
As the terms of off-the-plan contracts differ between developers, it is important for buyers to review the terms and conditions of each contract and disclosure document carefully to ensure that they understand the specific obligations, restrictions and risks that will apply in relation to each property they propose to purchase.
Some important issues to consider are:
- what rights do developers have to make amendments to the plans and specifications?
- does the buyer have the right to request changes to the fitout?
- does the developer and/or the buyer have the right to terminate the contract if the construction is not completed by a certain date?
- what rights do buyers have if construction is delayed or if the design of the unit is altered?
There are risks and rewards to weigh up for both Buyers and Developers, associated with off-the-plan sales, before entering into such a transaction.
Developers will, in most cases, require pre-sales off-the-plan in order to secure funding for the development. This process however exposes them to the possibility of the value of the property being higher at the time of completion. If that is the case they will miss out on receiving the benefit of that increase because the price to be paid by the buyer has been locked in at the time of signing the contract.
A drop in value can result in a windfall for developers, but also expose them to other risks associated with defaults by Buyers and resulting disputes.
Drops in values will impact Buyers also, with the risk of loss of deposit and exposure to claims for losses for breach of contract if the buyer fails to settle. Needing to rely on plans and artists impressions to envisage the property which does not yet exist can result in disappointment or pleasant surprises.
Not being able to see and feel the finished product before commitment to purchase is an exercise in speculation. All things, risks and rewards need to be considered by all parties.
DBL Solicitors can assist developers with the preparation of off-the-plan contracts and disclosure documentation to ensure compliance with the relevant legislation. We can also assist prospective buyers by reviewing and advising on the terms and conditions contained in off-the-plan contracts.